Australia’s home price growth expected to be 'brisk' as recession ends
Australian economists and property forecasters are predicting faster than expected growth in house prices in 2021, following news on Wednesday that Australia’s recession was technically over.
Australia’s economy grew 3.3 per cent in the September quarter, according to the latest gross domestic product (GDP) figures from the ABS.
Economists said the quarterly rise and technical end to the recession, which coincided with the easing of COVID-19-related restrictions, would give Australian consumers and home buyers further confidence in the housing market.
The announcement followed Tuesday’s CoreLogic Home Value Index that showed prices had risen in every capital city last month – the first time since the pandemic hit – with national home values up 0.8 per cent over November.
Looking forward, a new SQM Research report, released just hours after the strong GDP figures were announced, predicted capital city home prices could surge by up to 12 per cent next year, led by Perth and Sydney.
The Housing Boom and Bust Report 2021 predicted Perth home prices could rise between 8 and 12 per cent, while Sydney prices were expected to increase between 7 and 11 per cent.
Melbourne is forecast to rise at a more subdued rate of 2 to 6 per cent, due in part to the extended lockdowns in Victoria, which impacted many small businesses and could delay a jobs recovery, said Louis Christopher, SQM Research managing director.
CBA head of Australian economics Gareth Aird said Wednesday’s GDP figures of 3.3 per cent growth for the September quarter would further boost confidence in the Australian housing market.
“You’ve got an improving labour market, an improving economy, a lot of fiscal support, incredibly low interest rates, and momentum now back in the housing market,” Mr Aird said.
Auction clearance rates, consumer confidence and lending data had “all started to pick up”, he said.
“All of that is pointing to house-price rises in 2021, and they could potentially be quite brisk if the economy continues to improve at the rate it has been doing,” he said.
He said while Wednesday’s GDP figures were still below pre-COVID levels, the return to positive economic growth would instil further confidence in Australia’s housing market.
Mr Christopher agreed Wednesday’s reported “bounce” in GDP and the end of a technical recession would push up home prices in 2021.
“We will see a pick up in consumer confidence on the back of this, and that will translate to higher dwelling prices across our cities as per our forecast,” he said.
Mr Christopher said his base forecasts for growth across all capital cities assumed unchanged interest rates of 0.1 per cent, an extension of JobKeeper until September 2021 and the containment of any potential third wave of COVID-19 in Australia.
“If JobKeeper is scaled back too prematurely, the housing market recovery in Sydney and Melbourne could stall,” he said.
Mr Christopher’s report included a range of best and worst-case scenarios, relating to the roll-out of coronavirus vaccinations and the phasing out or extension of JobKeeper payments.
“It’s been one of the more challenging reports I’ve had to do because there are so many variables and uncertainties around COVID and government stimulus,” said Mr Christopher, who has been producing his annual capital city forecast report for about a decade.
However, the report’s base forecast for 2021 sees dwelling prices to rise between 5 and 9 per cent, on average, across all capital cities.
It predicts Adelaide will experience strong growth of between 6 and 10 per cent, along with Darwin and Canberra, with forecasts of 6 to 9 per cent, and 5 to 9 per cent growth, respectively.
Hobart (3 to 7 per cent) and Brisbane (4 to 8 per cent) are both tipped to experience home price growth slightly higher than in Melbourne where “current interstate migration outflows will also put Melbourne at a disadvantage”, Mr Christopher said.
“As 2020 draws to a close, the national housing market has responded to the unprecedented economic stimulus packages as well as record-low lending rates,” he said.
“Auction clearance rates have lifted since mid-year, and various dwelling price measurements have started to record price rises,” he said.
“It is likely that the housing market will gain further momentum on the back of increased investor activity, especially from those who seek some sort of income yield.”
He said predictions that Perth prices would rise faster than any other capital city were based largely on the current shortage of rentals in the market and an ongoing recovery in the base commodities market.
“You have to remember that housing prices in Perth are now actually lower than they were back in 2008, so that’s a key contributor to these significant gains we’re forecasting,” he said.
“But the other reason we are so bullish is that the rental market has really tightened up in Perth and it was the rental market that led Perth into its downturn in 2013,” he said.
“I’ve always had a theory that the rental market precedes the for-sale market in Perth, and we’ve seen a 9 per cent increase in market rents over 2020, which is huge. We believe rents could rise by up to 21 per cent … and that will eventually translate to higher prices,” he said.
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